Covid BI litigation slowly favouring policyholders but key questions remain

Policyholders continue to make progress in their fight to recover Covid-19 business interruption losses from insurers, although the settlement of recent cases and appeals still leaves several important unresolved issues, according to claimant law firm Fenchurch Law. While the UK Supreme Court judgment in the Financial Conduct Authority’s business interruption insurance test case in January 2021 was largely favourable for policyholders, it left subsequent cases to interpret the application of certain policy wordings to Covid-19 claims. One closely watched group of cases was Stonegate, Various Eateries and Gregs vs insurers, which considered issues arising out of the Marsh Resilience wording, including the trigger, aggregation, causation, additional increased costs of working and furlough. The outcome of the initial case was largely inconclusive, and the policyholders and insurers appealed various points on their respective judgments. “Everyone was set for a big showdown at the Court of Appeal just before Christmas, with most of the arguments still in play,” said Anthony McGeough, senior associate at Fenchurch Law in London. “However, Stonegate and Gregs settled, leaving only Various Eateries to go ahead with their appeal, although [with Various Eateries] there were fewer issues at dispute and furlough was not one of them. So the Court of Appeal has yet to grapple with that particular point,” he said in a webinar. With Stonegate and Gregs opting to settle last year, grounds of appeal on key issues such as furlough and additional increased costs of working did not end up before the Court of Appeal. The remaining grounds of appeal in dispute in Various Eateries vs Allianz included certain aggregation issues and a short point of construction on the scope of the prevention of access and enforced closure clauses, according to Fenchurch. Following a two-day combined appeal hearing in January this year, the Court of Appeal dismissed all grounds of appeal, essentially leaving the parties in the position they were in following judgments in the underlying proceedings, explained McGeough. “The unfortunate news is that the appeal essentially left everything exactly as it was. All grounds were dismissed, so it was a bit of an anticlimax. This means policyholders on this particular wording are still able to claim multiple sub-limits by reference to multiple government actions, the extent of which has yet to be decided. And those with composite policies may argue separate policies for separate companies. Those with multiple premises insured under a single policy will not be able to recover on a per-premises basis and will have to account for furlough savings,” he said. “It is worth noting that there is another trial on this wording coming up in January 2025, which is the Premier League cases, which will probably provide some useful insight, although there is a good chance that it will be quite industry specific,” McGeough said. The 2023 judgment in London International Exhibition Centre Plc v RSA Insurance – which considered the application of ‘at the premises disease clauses’ – was another helpful decision for policyholders. But it also left some big unanswered questions, including how policyholders can evidence a case of Covid-19 at the premises at the relevant time, said McGeough. Permision to appeal has been granted and the hearing will take place in June this year. More recently, a group of cases under Gatwick Investment and Others vs Liberty Mutual and Allianz examined prevention of access/non-damage denial of access wordings. Insurers attempted to argue that the earlier policyholder-friendly judgment of Corbin & King had been wrongly decided. The January 2024 ruling in Gatwick Investment was welcome news for policyholders, as it again reaffirmed the decision in Corbin & King v Axa, according to Fenchurch Law. However, insurers have been granted permission to appeal on causation, and wordings affected by this issue will await the outcome of that, despite now having a number of significant authorities supporting their claims, it said. The Gatwick Investment judgment will come as particularly welcome news to insureds with composite polices, which cover multiple businesses or premises, said Fenchurch Law. In the absence of specific wording to the contrary, these companies should continue to pursue claims for each insured entity, and also multiple premises in certain circumstances, it said. Fenchurch noted that the UK now has the most developed body of case law on Covid-19 BI litigation. “The persuasive and influential nature of the English judiciary, unlike some sections of the insurance market, has really shone during Covid and stood out in how it has managed to get a number of these highly complex multi-party test cases done at short notice,” said Daniel Robin, head of Fenchurch Law’s reinsurance and international risks practice group. Courts in the US have unfortunately “not been a fantastic place if you are a policyholder seeking cover for Covid BI losses”, explained Robin. “That is largely because in the US they do not do non-damage BI, and the courts have found that loss of use due to Covid restrictions does not constitute loss of use under BI policies,” he said. “The courts have found that under damage BI policies, even with loss of use, the policyholder must suffer a tangible alternation of physical property – effectively physical damage – to trigger cover. A loss of use absent physical harm is not enough to trigger cover,” he said. “Covid 19 does not cause physical property damage and therefore Covid 19 emergency closures do not trigger civil authority closures. And that has been upheld by the state Supreme Court, and generally state appellate courts have declined to engage and have upheld earlier decisions. However, there may be a slight sea change in this and there has been a smattering of pro-policyholder decisions,” added Robin. France has seen a change in fortunes for companies looking to claims Covid BI losses from insurers. “France is important because it demonstrates how a position can quickly change,” said Robin. “Just over a year ago, I would have told you that France was fairly pro-policyholder. However, in December 2022, the Supreme Court quashed four judgments by the Court of Appeal at the Aix-en-Provence regarding Covid BI losses… these were a number of cases involving restaurant owners that had taken out policies with AXA covering BI losses following administrative closures,” he said. Just behind the UK, Australia and Ireland are the two jurisdictions where Covid 19 business interruption case law is most developed, according to Robin. A recent case in Dubai – LALS Holding vs Emirates Insurance Company – weighed up Covid BI rulings from the English, Australian and Irish courts, and followed the policyholder favouring ruling in Corbin & King, he said.

Covid BI litigation slowly favouring policyholders but key questions remain

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